As with so much in small business, figuring out how to pay your salespeople comes down to balance.
On one hand, you’re trying to stay lean and keep overhead low; on the other, you know you’ll have a hard time attracting talent if you don’t offer a competitive sales compensation package.
“Competitive, affordable sales compensation plans”—maybe you think that sounds like an oxymoron. Based on your past endeavors to offer as much, you may not think there’s any way to make a plan both competitive and affordable.
There is a way. We promise. But first, let’s weigh some key considerations.
Preliminary calibration: Factors to consider
It’s tough to find balance if you’re unaware of the various factors at play and how they may affect the weights of a salesperson’s base salary, commissions, and bonus package.
Consider the following as you create your sales compensation plans:
- Your goals and their incentives
Like your sales goals, compensatory incentives should be attainable. They should also be carefully determined in accordance with your bigger-picture objectives. Align the goals of the business as a whole with the incentives of the individual salesperson.
- More than just revenue
Too many small businesses draft sales compensation plans that only consider revenue and profit, which may result in “rich get richer” scenarios—with the salespeople who inherit big, easy accounts raking it in while their peers plow away in new territories with non-automatic clientele.
Weigh revenue and profit against customer acquisition and strategic market development. Perhaps your company sees customers dramatically grow over time; reward the salespeople who are bringing those customers in, even if the revenue that comes with those new relationships is minimal in the short term. Or maybe you’re looking to expand your brand into new markets or territories. Build in incentives for those who successfully progress those initiatives.
Leveling the playing field will keep your salespeople motivated and happy. It will also ensure that your team is operating in a way which will further the larger growth plan of your business, rather than focusing on exploiting loopholes in your compensation program.
- Heavy roles and light roles
Your salespeople should be compensated based on the roles they play.If you need to hire someone who will mostly manage accounts—inheriting a contact list which was obtained by someone before them—then you probably want to compensate that individual with a higher base salary, little to no commission and some bonuses for production and upset efforts. Salespeople who are facing more unknowns, meanwhile, should have tapered-back base salaries and higher commissions.
- Industry standards
Are you paying out competitively? Turnover can be common in sales as pros in the field constantly seek out better-paying gigs. But if you can provide room for growth and pay well, you could quickly become a talent magnet.
Survey your industry to double check that your pay scale—from base salary to commissions and bonuses—meets the mean of your competitors. Listen to salespeople who talk about previous jobs and take careful notes in exit interviews.
- Feed the top dogs best
Surely you want to retain your top talent. They’ve been critical to the growth of your business. When building your plan, make sure you’re recognizing the top dogs for their exploits. The most natural way to do this is a tiered system with commissions based on increasing percentages. Such a system will keep your sales team motivated and further encourage healthy competition.
- The weight of it all
Your small business’s revenue is unequivocally tied to the performance of your sales team. Furthermore, your sales team is often the face of your business, directly interacting with customers regularly. So getting compensation right is critical. You want to make sure you land the right salespeople and you want to keep those people motivated and satisfied.
A sales compensation plan for scaling up
The unusual nature of sales compensation—and the variables therein—can make planning both daunting and confusing. What criteria can you use to determine base salaries, commissions, and bonuses?
With the above considerations in mind, let’s look at the general components of a sales compensation structure and how you should go about making determinations for each.
Let’s just get this out of the way: commission-only compensation is a thing of the past in the sales world. It’s not retaining anyone after salespeople have witnessed the economy’s volatility.
Your sales job candidates will interview expecting a base salary. But how much should that be? We’ve covered that a little bit already, but here are the basics:
- High base salary: Bigger base salaries should go to those salespeople who have near-automatic commissions and are best utilized managing existing accounts rather than chasing new business. Explain why there’s a lack of commission to these salespeople and how their base salaries stack up with those of their peers.
- Moderate base salary: A moderate base salary is best for a salesperson who inherits or manages a handful of accounts and divides their time evenly between those and new business prospects. Show moderate base salary salespeople why they have less-lucrative commissions and lower base salaries than others in their department who fill different roles.
- Low base salary: While commission-only sales jobs are increasingly rare, there are still plenty of sales compensation packages which include low base salaries paired with high commissions and bonuses. Such structures should be reserved for those in high-risk sales jobs, whose success is difficult to predict. It’s important to explain to these salespeople that the sky is the limit—show them what kind of money they could make if they perform well.
The idea of commission is native to the sales world. It’s meant to motivate and unleash driven salespeople to chase new business, affording them rewards with each conversion. But how do you know how to structure commissions so you’re not losing profits on “layup” sales?
In an effort to balance commissions with base salaries and bonuses, here’s a look at who deserves what kind of commissions:
- High commissions: Big commission packages should be given to those who will have to do a lot of plowing in order to convert a sale.
- Moderate commissions: Offer moderate commission packages to those who have to balance account management with customer acquisition. Be careful not to only pay out commissions on customer acquisitions, as that may result in neglect of existing accounts for the salesperson who holds responsibility for both.
- Low/negligible commissions: Salespeople who primarily serve existing customers should see the majority of their compensation from a base salary, not commissions.
From sales contests to production and upselling recognition, budget to pay out bonuses to your sales team based on their performance within your overarching sales goals.
Bonuses open the door for strategy, allowing you to incentivize particular initiatives that are important to the growth of your business beyond just revenue generation. Perhaps you’re selling in new territory or rolling out a new product or service. Use a contest or bonus of some kind to ensure each individual salesperson is aligned with your goal.